From Free to Pay: A Three-Stage Freemium Strategy

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Hsu, Pei-Fang; Tsai, Wei-Chih
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To make freemium model feasible, SaaS vendors need to understand what key factors could transfer free users into paying customers. Based on UTAUT theory, we suggest a three-stage framework: free using, initial paying, and premium paying, and propose different facilitating conditions (security, transaction efficiency and alternative) to help SaaS vendors attract customers. We hypothesize that while the original constructs in UTAUT model (performance expectancy, effort expectancy and social influence) are still important, they are mainly threshold factors in determining users’ paying behavior. In other words, companies at the second stage aiming to attract users to pay for SaaS, should focus on facilitating conditions, security and transaction efficiency. Moreover, companies at their third stage aiming to seduce customers to pay more, should allocate their resources on innovation to lower alternatives’ attractiveness. We collected 573 SaaS users to empirically test the model.